Profile picture for ChrisInFL

First time buyer trying to cover all the bases, a little advice please?

Ok, so im a first time homebuyer and I have several question. Ive been doing my best to inform myself of as much information as possible. Currently my wife and I are looking for a home in the Vero Beach FL area on the treasure coast (as far down as lakewood park). I made 49K in 2013. I have about $450 in monthly debt (including car loan/insurance/cable/cell etc..) My wife is a stay at home mom to our 2 yr old. Currently renting.

Questions
1. Now I have 2 medical collections that recently went on my credit. Before these went on, my credit score was 740. Now its 680! Should it have dropped it that much??
2. I plan on sending them a Pay for Delete letter. Im praying they take it. One is for $267 and the other for $200. How much would this hurt my rate if it showed as paid off instead of removed? (as i know some agencies wont do a pay for delete because the credit bureaus frown on it)
3. Im looking for an FHA. Most likely a 203K as many homes in the area are foreclosures and wont pass inspection. Most need about 5-10K in work. Are there any good experienced lenders in the area with 203K loans? And how difficult is it to obtain these loans?
4. Currently we rent from a family friend. He puts a little of our rent into savings every month for us. In the next couple months we should have 1,500-2,000 saved with him by the time we start looking. Problem is I dont want to have to drag him into the hassle of "gifting" us the money (bank statements etc..). As well he cant reduce the rent by that much so we can simply save the money ourselves because I dont want to have any changes like that crop up during my application and have to explain it. Any ideas how to work around this? Because I know we have to account for the money im not sure how to explain where it came from by putting it in my account.
5. We are looking at around 100K or less for a home. We will have about 6K cash saved up. About 3600 of it is coming in my tax return. Is this feasible?
  • January 19 2014 - Vero Beach
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Answers (8)

We underwrite 203k loans in-house and we have a credit counselor in my office so I could review with her but I think you will want to pay off asap even if they don't delete.  Your credit score will be fine for FHA either way.
  • January 19 2014
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Profile picture for wetdawgs
It may be possible.   Find a good lender, map out a pathway and see if it possible.   Too many people have ended up in financial ruin by trying to take the high speed pathway to purchase, rather than step by step. 

As you've identified, the financial obligations of home purchase don't stop after the closing date but maintenance can end up as a big ticket item.    Most people only have a limited tolerance for a beans and rice savings program, and a year may help you avoid that austerity.
  • January 19 2014
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Profile picture for user365910
I dont know why but its not letting me post as ChrisInFL but thats me...anyways.

I realize that my financial situation may seem hectic but it's really just the rent savings issue i was worried about.. However my living situation has changed. The person we are renting from is moving back into the home in 6 months and we need to be out, but we both feel that we do not want to rent anymore. Part of the agreement for saving money with the rent is that we are completely responsible for anything that needs to be fixed short of major issues (septic, roof etc..). It partly works for us because dealing with getting a landlord to fix anything has been a huge hassle in the past but at the same time im putting money into a home i dont own. We are ready to place roots and dealing with landlords has been nothing short of a nightmare with us. The reason I have so little saved is because last year I spent over 6,000 cleaning up my credit. That money was going to be used THIS year to add to my out of pocket expenses to purchase a home. Waiting another year to save really isn't an option for us if we can get into a home this year. If its just not possible then we would have no choice, but renting is really the final option for us.
  • January 19 2014
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Pay off the medical, and get removed from credit. To do this get a letter from collection agency stating account is paid in full and they request for the account to be removed from credit. Secondly, try to avoid the FHA loan altogether as it sounds like you will have the 5% down for a conventional loan. You may still need an FHA due to debt to income issues, but avoid FHA if you can because of the MI. Conventional will allow 3% seller concessions. If you must do an FHA 203K, then be prepared to not close for 60-90 days from contract. You will get the financed aligned while you also have a licensed and insured GC give quotes, Usually will need 2-3. After you decide on the GC, then the finanacing can be finalzied and the GC can begin work. The GC will get a payment at the beginning and at the end of the job. As far as your updates, those will be the variables you can go over with GC when working up the estimates. So many more details, but you will go through all of that within the process.
  • January 19 2014
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Profile picture for Kevin Cooter

It's not that complicated and you shouldn't feel so overwhelmed.  I wish you were in my area and you would already be home!

Regardless if it's typical FHA loan (called a 203b) or an FHA 203k loan, you need at least 3.5% "Down Payment" along with a way to cover the typical "closing costs" and "prepaids".

3.5% down on a $100,000 home is only $3,500.  You should get that from your upcoming tax return according to the information you provided.   In that case you won't need an ominous "gift letter" from your current Landlord--- which, by the way, may not suffice anyway since you're not blood relatives.  Unless that agreement was already in writing by now, (putting some of your rent into a savings account for you that he would ultimately give back to you), it wouldn't be counted by the lender anyway.

The other $4,000-$5,000 of "closing costs and prepaids" might be covered by the seller in order to sell their property. Some might cap out at 3% (or about $3,000 in your situation) so you would only have to come up with another $1,000-$2,000 which might be combination of your earnest money and appraiser's fee for your area that you would likely be required to pay in advance anyway.

Finally, just pay get those little piddly collections paid--- negotiating as little of a payoff as you can.  Make SURE, however, that before you send money you get a letter as evidence stating something like, "…upon receiving $267.00 this account will be considered paid".  Upon paying it they must tell you how soon they will be reporting this to the credit bureau. Check up on it after that date.

Your credit score is already satisfactory for an FHA loan. Go get ‘em!

  • January 19 2014
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Profile picture for wetdawgs
There is nothing wrong with having a goal  for home purchase, but yours is rather a stretch.    What you are describing also sounds like a fast path to financial crises.    Why not step back a few steps, deal with those collections (and it is hard to get bona fide collections removed so don't be surprised if it doesn't happen), deal with savings for closing costs and emergency fund and get a solid financial basis before putting house responsibilities into the picture.

While is quite possible you'll be able to find a way to purchase on your time frame, the problem is that a year from now something will happen (be it a medical issue, or a hole in the roof or the furnace goes belly up) and you'll be stuck.   Having those reserves protects you and allows you to continue your dream of home ownership rather than have a crisis.







  • January 19 2014
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Maybe, but you have a much-too-complicated financial life right now.

In my opinion - you need to have more money before you buy a house. You make $49K, you have saved $2400 and you have somebody else putting money aside on your behalf. I think you should have $15,000 saved before you go and buy a house, especially a fixer. You have one income and a small child; if you buy a house in your current condition, you are one small problem (furnace, engine repair, medical problem) away from default.

Most advisors recommend having six months' of living expenses on hand, you have enough to last you three weeks. I suggest that for the sake of your family, you take control of your own savings program and boost that pile o'cash before you go out and buy real estate.

All the best,
  • January 19 2014
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A 203K loan is a bit different than a regular loan. You are going to need to talk with a loan officer anyway, just find one that can offer a 203K and can explain it to you. They can also tell you what you can borrow. Not all lenders do 203K so make some calls to lenders/banks in your area to see if they offer them before you go there to talk with them.
  • January 19 2014
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